Dreyfus
BASIC GNMA Fund
ANNUAL REPORT December 31, 1999
(reg.tm)
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured
* Not Bank-Guaranteed
* May Lose Value
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by Dreyfus and
the fund's other service providers do not properly process and calculate
date-related information from and after January 1, 2000. Dreyfus has taken steps
designed to avoid year 2000-related problems in its systems and to monitor the
readiness of other service providers. In addition, issuers of securities in
which the fund invests may be adversely affected by year 2000-related problems.
This could have an impact on the value of the fund's investments and its share
price.
Contents
THE FUND
- --------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
7 Statement of Investments
11 Statement of Financial Futures
12 Statement of Assets and Liabilities
13 Statement of Operations
14 Statement of Cash Flows
15 Statement of Changes in Net Assets
16 Financial Highlights
17 Notes to Financial Statements
23 Report of Independent Auditors
24 Important Tax Information
FOR MORE INFORMATION
- ---------------------------------------------------------------------------
Back Cover
The Fund
Dreyfus BASIC GNMA Fund
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus BASIC GNMA Fund
covering the 12-month period from January 1, 1999, through December 31, 1999.
Inside, you' ll find valuable information about how the fund was managed during
the reporting period, including a discussion with Michael Hoeh, portfolio
manager and a member of the Dreyfus Taxable Fixed Income Team.
The past year was challenging for most fixed-income investors. Faster than
expected economic growth in the U.S. and overseas fueled concerns that
long-dormant inflationary pressures might re-emerge, potentially reducing the
future value of bonds' interest and principal payments. These concerns prompted
the Federal Reserve Board to raise key short-term interest rates three times
during the summer and fall of 1999 in an attempt to prevent a reacceleration of
inflation.
While U.S. Treasury and agency securities declined sharply in this environment
during 1999, prices of higher yielding securities -- such as corporate bonds and
mortgage-backed securities -- fell less severely. In an environment of robust
economic growth, investors appeared more comfortable owning bonds that are
influenced primarily by credit risk, and they avoided securities that are most
affected by interest-rate risk.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus BASIC GNMA Fund.
Sincerely,
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
January 14, 2000
DISCUSSION OF FUND PERFORMANCE
Michael Hoeh, Portfolio Manager Dreyfus Taxable Fixed Income Team
How did Dreyfus BASIC GNMA Fund perform relative to its benchmark?
For the 12-month period ended December 31, 1999, the fund produced a 2.82% total
return.(1) In addition, the fund provided income dividends of $0.960 per share
and a distribution rate of 6.64%.(2) This performance exceeded the 1.93% return
provided by the fund's benchmark, the Lehman Brothers GNMA Index.(3)
We attribute the fund's positive returns to our asset allocation and duration
strategies. Our emphasis on GNMA mortgage-backed securities enabled us to
benefit from the relative strength of the GNMA market sector. In addition, by
maintaining the fund's average duration -- a measure of sensitivity to changing
interest rates -- toward the short end of its range, we successfully shielded
the fund from the corrosive effects of rising interest rates.
What is the fund's investment approach?
The fund invests primarily in GNMA (Government National Mortgage Association or
" Ginnie Mae" ) securities. The fund may also invest in other mortgage-related
securities, U.S. Treasury securities, asset-backed securities and other
non-agency mortgage-backed securities. The fund' s goal is to provide a high
level of current income consistent with capital preservation.
We typically use a four-step investment approach:
* PREPAYMENT TREND ANALYSIS measures the rate at which homeowners are likely
to prepay their mortgages because of home sales or refinancing. An increase
in this trend adversely affects returns of mortgage-related securities.
The Fund
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
* OPTION-ADJUSTED SPREAD ANALYSIS compares the early redemption
characteristics of different mortgage-backed securities with other
securities such as U.S. Treasuries to help us measure their vulnerability
to early redemption.
* CASH FLOW STRUCTURE ANALYSIS helps us determine the predictability and
security of cash flows provided by different bond structures. We evaluate
fixed-rate versus floating-rate securities, as well as different maturities
such as 15-, 20- and 30-year mortgages.
* TOTAL-RATE-OF-RETURN SCENARIOS calculate expected rates of return for each
security relative to U.S. Treasury securities under different interest-rate
scenarios over a six-month time frame. This helps us estimate which
securities are likely to provide above-average returns in various
interest-rate environments.
What other factors influenced the fund's performance?
Rising interest rates created a headwind against the fund throughout 1999.
Contrary to early expectations, many global economies staged impressive rebounds
as the year progressed and the U.S. economy continued to grow strongly. As a
result, fixed-income investors grew concerned that long-dormant inflationary
pressures might re-emerge. In response, the Federal Reserve Board raised
short-term interest rates by a total of 0.75 percentage points during 1999. At
the same time, strong economic growth reassured investors that a recession was
unlikely, and they became more comfortable holding riskier assets such as
corporate bonds and mortgage-backed securities.
As assets flowed into higher yielding bonds, they flowed out of U.S. Treasury
securities, putting downward pressure on prices. As a result, U.S. Treasury
securities underperformed most other sectors of the bond market in 1999. When
prices of U.S. Treasuries securities fell, the differences in yields between
U.S. Treasury securities and higher yielding bonds tightened then moderated
somewhat during the second half of the year. We took advantage of these market
conditions relatively early in the year by emphasizing several different types
of mortgage-backed securities and generally avoiding lower yielding U.S.
Treasury securities.
What is the fund's current strategy?
We continue to focus on GNMA securities, particularly those with adjustable
rates. GNMA adjustable-rate mortgage securities ranked among the best-performing
securities in the portfolio. Unlike fixed-rate securities, which tend to decline
in price as interest rates rise, the income payments on adjustable-rate
securities generally rise with rising interest rates. In addition, our emphasis
on securities that mature in 15 years was rewarded when those securities
outperformed 30-year bonds.
During the fourth quarter of 1999, we reduced our holdings of credit-sensitive
securities in order to lock in profits. We redeployed those assets primarily to
GNMA pass-through mortgage-backed securities in the 15- and 30-year maturity
ranges. We also increased our holdings of short-term Treasury Inflation
Protection Securities in order to help protect the portfolio from a potentially
higher rate of inflation in 2000.
Throughout most of 1999, we maintained the fund's average duration shorter than
the duration of the fund's benchmark. This relatively defensive position enabled
us to avoid the brunt of price declines in the bond market. Toward the end of
the reporting period, after the sell-off in U.S. Treasuries, we lengthened the
fund' s average duration back to equal the duration of the benchmark in order to
enhance the fund's yield.
January 14, 2000
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS
PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE,
YIELD AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, FUND
SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
(2) DISTRIBUTION RATE PER SHARE IS BASED UPON DIVIDENDS PER SHARE PAID
FROM NET INVESTMENT INCOME DURING THE PERIOD, DIVIDED BY THE NET ASSET
VALUE PER SHARE AT THE END OF THE PERIOD.
(3) SOURCE: LEHMAN BROTHERS - THE LEHMAN BROTHERS GNMA INDEX IS AN
UNMANAGED, TOTAL RETURN PERFORMANCE BENCHMARK FOR THE GNMA MARKET,
CONSISTING OF 15- AND 30-YEAR FIXED-RATE SECURITIES BACKED BY MORTGAGE
POOLS OF THE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION.
The Fund
FUND PERFORMANCE
Comparison of change in value of $10,000 investment in Dreyfus BASIC GNMA Fund
and the Lehman Brothers GNMA Index
- --------------------------------------------------------------------------------
<TABLE>
Average Annual Total Returns AS OF 12/31/99
1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FUND 2.82% 7.59% 7.41%
</TABLE>
(+) SOURCE: LEHMAN BROTHERS
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN DREYFUS BASIC GNMA FUND ON
12/31/89 TO A $10,000 INVESTMENT MADE IN THE LEHMAN BROTHERS GNMA INDEX ON THAT
DATE. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED.
THE FUND INVESTS PRIMARILY IN GINNIE MAES AND ITS PERFORMANCE SHOWN IN THE LINE
GRAPH TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES. UNLIKE THE FUND, THE
LEHMAN BROTHERS GNMA INDEX IS AN UNMANAGED TOTAL RETURN PERFORMANCE BENCHMARK
FOR THE GNMA MARKET, CONSISTING OF 15- AND 30-YEAR FIXED-RATE GNMA SECURITIES.
ALL ISSUES HAVE AT LEAST ONE YEAR TO MATURITY AND AN OUTSTANDING PAR VALUE OF AT
LEAST $100 MILLION. THE INDEX DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER
EXPENSES. THESE FACTORS CAN CONTRIBUTE TO THE INDEX POTENTIALLY OUTPERFORMING
THE FUND. FURTHER INFORMATION RELATING TO FUND PERFORMANCE, INCLUDING EXPENSE
REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION
OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT.
STATEMENT OF INVESTMENTS
December 31, 1999
<TABLE>
Principal
BONDS AND NOTES--141.7% Amount($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCIES/
MORTGAGE-BACKED SECURITIES--109.6%
Government National Mortgage Association I:
6.5%, 10/15/2010-5/15/2011 240,109 235,329
7%, 1/15/2024-11/15/2024 1,254,525 1,220,619
7.5% 200,000 (a) 197,874
7.5%, 12/15/2023 262,136 259,515
8% 28,125,000 (a) 28,423,688
8%, 4/15/2008-12/15/2022 6,881,839 6,971,655
8.5%, 2/15/2005-3/15/2022 839,072 870,206
9%, 5/15/2016-11/15/2022 698,409 739,296
9.5%, 1/15/2017-12/15/2021 338,979 364,926
39,283,108
Government National Mortgage Association I,
Construction Loans,
6.75%, 9/15/2036-10/15/2036 6,505,500 5,909,840
Government National Mortgage Association I,
Project Loans:
6.32%, 10/15/2033 2,567,556 2,387,827
6.375%, 10/15/2033-1/15/2034 4,352,161 4,102,753
6.4%, 10/15/2033 1,832,512 1,743,745
6.41%, 8/15/2028 988,697 942,040
6.43%, 9/15/2033 1,485,985 1,391,253
6.45%, 11/15/2033-3/15/2034 5,497,046 5,205,675
6.55%, 12/15/2033 698,429 664,597
6.6%, 5/15/2028 1,913,521 1,819,031
6.625%, 8/15/2028-1/15/2034 15,307,390 (b) 14,689,373
6.7%, 3/15/2028 636,333 619,827
6.75% 741,293 (a) 673,418
6.75%, 12/15/2023 6,025,775 (b) 5,871,555
7.125%, 1/15/2029 1,296,585 1,261,331
7.25%, 4/15/2029-3/15/2034 4,718,908 4,708,789
46,081,214
Government National Mortgage Association II:
5.5% 3,250,000 (a,c) 3,182,953
6% 5,165,000 (a,c) 5,119,806
7% 5,790,000 (a) 5,594,588
7%, 8/20/2028-9/20/2029 6,531,602 6,290,642
7.5% 5,000,000 (a) 4,946,850
9%, 5/20/2016-7/20/2025 510,619 530,811
9.5%, 9/20/2021-12/20/2021 104,993 111,661
25,777,311
The Fund
Principal
BONDS AND NOTES (CONTINUED) Amount($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES/
MORTGAGE-BACKED SECURITIES (CONTINUED)
Federal Home Loan Mortgage Corp.,
Stripped Securities, Interest Only Class:
Ser. 1541, Cl. FA, 7%, 5/15/2019 4,904,658 (b,d) 496,155
Ser. 1590, Cl. JA, 6.5%, 10/15/2021 6,000,000 (b,d) 999,375
Ser. 1596, Cl. L, 6.5%, 12/15/2012 1,800,000 (b,d) 213,696
Ser. 1916, Cl. PI, 7%, 12/15/2011 1,094,946 (b,d) 239,596
Ser. 1987, Cl. PI, 7%, 9/15/2012 1,132,872 (b,d) 234,618
2,183,440
Federal Housing Administration,
Project Loans:
7.2%, 2/1/2033 1,113,651 1,032,911
7.625%, 4/1/2031 1,232,021 1,174,655
2,207,566
Federal National Mortgage Association,
Stripped Securities, Interest Only Class,
Ser. 1997-74, Cl. PK, 7%, 11/18/2027 4,000,000 (b,d) 1,513,750
TOTAL U.S. GOVERNMENT AGENCIES/
MORTGAGE-BACKED SECURITIES 122,956,229
ASSET-BACKED SECURITIES--3.4%
Nomura Depositor Trust:
Ser. 1998-ST1, Cl. A-3, 7.043%, 2003 500,000 (e,f) 496,563
Ser. 1998-ST1, Cl. A-5, 7.713%, 2003 3,500,000 (e,f) 3,331,563
TOTAL ASSET-BACKED SECURITIES 3,828,126
COMMERCIAL MORTGAGE PASS-THROUGH CTFS.--11.0%
CS First Boston Mortgage Securities,
Ser. 1998-C1, Cl. C, 6.78%, 2009 1,000,000 (b) 932,985
Chase Commercial Mortgage Securities,
Ser. 1998-SN1A, Cl. D, 7.291%, 2001 750,000 (b,e,f), 747,891
Chase Manhattan Bank--First Union National
Ser. 1999-1, Cl. B, 7.619%, 2009 2,000,000 2,000,000
DLJ Commercial Mortgage,
Ser. 1999-CG2, Cl. B-2, 7.607%, 2009 3,300,000 (b,e,f) 2,947,313
GGP Ala Moana,
Ser. 1999-C1, Cl. D, 7.569%, 2004 2,500,000 (b,e,f) 2,500,000
Merrill Lynch Mortgage Investors,
Ser. 1997-SD1, Cl. E, 7.5%, 2010 3,500,000 (b,e,f) 3,208,984
TOTAL COMMERCIAL MORTGAGE PASS-THROUGH CTFS. 12,337,173
RESIDENTIAL MORTGAGE PASS-THROUGH CTFS.--14.2%
BA Mortgage Securities,
Ser. 1998-2, Cl. 2B-2, 6.5%, 2013 288,849 (b) 258,159
Principal
BONDS AND NOTES (CONTINUED) Amount($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL MORTGAGE PASS-THROUGH CTFS. (CONTINUED)
Chase Mortgage Finance,
Ser. 1998-S3, Cl. B-2, 6.5%, 2013 632,813 (b) 586,185
GE Capital Mortgage Services,
Ser. 1998-16, Cl. B-2, 6.5%, 2013 591,708 (b) 512,490
Norwest Asset Securities:
Ser. 1997-3, Cl. B-1, 7.25%, 2027 2,429,290 (b) 2,342,783
Ser. 1997-3, Cl. B-2, 7.25%, 2027 971,716 (b) 930,554
Ser. 1997-7, Cl. B-2, 7%, 2027 777,708 (b) 717,187
Ser. 1997-9, Cl. B-2, 7%, 2012 425,153 (b) 399,988
Ser. 1997-11, Cl. B-2, 7%, 2027 514,426 (b) 459,475
Ser. 1997-15, Cl. B-2, 6.75%, 2012 617,674 (b) 570,119
Ser. 1997-20, Cl. B-2, 6.75%, 2012 389,448 (b) 355,180
Ser. 1998-14, Cl. B-3, 6.5%, 2013 584,933 (b) 509,015
Ser. 1998-18, Cl. B-3, 6.25%, 2028 862,710 (b) 745,623
PNC Mortgage Securities:
Ser. 1997-8, Cl. 3B-3, 6.75%, 2012 286,482 (b) 268,795
Ser. 1998-2, Cl. 3B-3, 6.75%, 2013 541,663 (b) 505,512
Ser. 1998-2, Cl. 4B-3, 6.75%, 2027 391,290 (b) 357,162
Ser. 1998-11, Cl. 2B-3, 6.25%, 2013 500,058 (b) 437,316
Residential Accredit Loans:
Ser. 1997-QS6, Cl. M-2, 7.5%, 2012 955,573 (b) 935,788
Ser. 1997-QS6, Cl. M-3, 7.5%, 2012 621,118 (b) 592,724
Residential Funding Mortgage Securities I:
Ser. 1997-S10, Cl. M-3, 7%, 2012 482,080 (b) 448,730
Ser. 1997-S11, Cl. M-3, 7%, 2012 698,873 (b) 673,276
Ser. 1997-S19, Cl. M-3, 6.5%, 2012 634,318 (b) 572,859
Ser. 1997-S21, Cl. M-3, 6.5%, 2012 366,122 (b) 323,729
Ser. 1998-NS1, Cl. M-2, 6.375%, 2009 141,008 (b) 134,105
Ser. 1998-NS1, Cl. M-3, 6.375%, 2009 70,504 (b) 66,397
Ser. 1998-S9, Cl. M-3, 6.5%, 2013 963,471 (b) 882,925
Ser. 1998-S14, Cl. M-3, 6.5%, 2013 804,731 (b) 752,235
Ser. 1998-S16, Cl. M-3, 6.5%, 2013 723,933 (b) 629,587
TOTAL RESIDENTIAL MORTGAGE PASS-THROUGH CTFS. 15,967,898
U.S. GOVERNMENTS--3.5%
U.S. Treasury Inflation Protection Securities,
3.755%, 1/15/2008 4,000,000 (g) 3,968,160
TOTAL BONDS AND NOTES
(cost $164,253,213) 159,057,586
The Fund
Principal
SHORT-TERM INVESTMENTS--.7% Amount($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS:
4.82%, 1/13/2000 350,000 (h) 349,549
4.4075%, 3/30/2000 474,000 (h) 468,089
TOTAL SHORT-TERM INVESTMENTS
(cost $817,524) 817,638
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(cost $165,070,737) 142.4% 159,875,224
LIABILITIES, LESS CASH AND RECEIVABLES (42.4%) (47,623,438)
NET ASSETS 100.0% 112,251,786
A PURCHASED ON A FORWARD COMMITMENT BASIS.
B SECURITIES HELD IN WHOLE OR IN PART BY THE CUSTODIAN IN A SEGREGATED
ACCOUNT AS COLLATERAL FOR SECURITIES PURCHASED ON A FORWARD COMMITMENT
BASIS.
C ADJUSTABLE RATE MORTGAGE--INTEREST RATE SUBJECT TO CHANGE
PERIODICALLY.
D REFLECTS NOTIONAL FACE.
E SECURITIES EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES
ACT OF 1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT
FROM REGISTRATION, NORMALLY TO QUALIFIED INSTITUTIONAL BUYERS. AT
DECEMBER 31,1999, THESE SECURITIES AMOUNTED TO $13,232,314, OR 11.8%
OF NET ASSETS.
F VARIABLE RATE SECURITY--INTEREST RATE SUBJECT TO CHANGE PERIODICALLY.
G PRINCIPAL AMOUNT FOR ACCRUAL PURPOSES IS PERIODICALLY ADJUSTED BASED
ON CHANGES TO THE CONSUMER PRICE INDEX.
H SECURITIES HELD IN WHOLE OR IN PART BY THE CUSTODIAN IN A SEGREGATED
ACCOUNT AS COLLATERAL FOR OPEN FINANCIAL FUTURES POSITIONS.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF FINANCIAL FUTURES
December 31, 1999
<TABLE>
Market Value Unrealized
Covered Appreciation
Contracts by Contracts ($) Expiration at 12/31/99 ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL FUTURES SHORT
U.S. Treasury 5 year Notes 126 12,349,969 March 2000 248,594
U.S. Treasury 10 year Notes 189 18,117,422 March 2000 117,523
366,117
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
Cost Value
- --------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 165,070,737 159,875,224
Cash 74,851
Interest receivable 1,025,212
Receivable for futures variation margin--Note 4(a) 116,156
Receivable for shares of Beneficial Interest subscribed 2,323
Paydowns receivable 1,055
Prepaid expenses 1,583
161,096,404
- --------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 61,359
Payable for investment securities purchased 48,590,957
Payable for shares of Beneficial Interest redeemed 114,449
Accrued expenses 77,853
48,844,618
- --------------------------------------------------------------------------------
NET ASSETS ($) 112,251,786
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 117,685,300
Accumulated undistributed investment income--net 21,922
Accumulated net realized gain (loss) on investments and financial futures
(626,040)
Accumulated net unrealized appreciation (depreciation)
on investments (including $366,117 net unrealized
appreciation on financial futures)--Note 4(b) (4,829,396)
- --------------------------------------------------------------------------------
NET ASSETS ($) 112,251,786
- --------------------------------------------------------------------------------
SHARES OUTSTANDING
(unlimited number of $.001 par value shares of Beneficial Interest authorized)
7,799,592
NET ASSET VALUE, offering and redemption price per share ($) 14.39
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INTEREST INCOME 8,698,405
EXPENSES:
Management fee--Note 3(a) 644,927
Interest expense--Note 5 969,816
Shareholder servicing costs--Note 3(b) 236,905
Professional fees 56,136
Trustees' fees and expenses--Note 3(c) 36,082
Registration fees 30,725
Custodian fees--Note 3(b) 27,454
Prospectus and shareholders' reports 20,186
Loan commitment fees--Note 2 96
Miscellaneous 10,451
TOTAL EXPENSES 2,032,778
Less--reduction in management fee due to
undertaking--Note 3(a) (364,195)
NET EXPENSES 1,668,583
INVESTMENT INCOME--NET 7,029,822
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments (1,795,524)
Net realized gain (loss) on financial futures 2,312,839
NET REALIZED GAIN (LOSS) 517,315
Net unrealized appreciation (depreciation) on investments
(including $213,886) net unrealized appreciation
on financial futures) (4,354,884)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (3,837,569)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 3,192,253
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
STATEMENT OF CASH FLOWS
Year Ended December 31, 1999
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES ($):
Dividends and interest received 8,677,349
Interest and loan commitment fees paid (986,979)
Operating expenses paid (668,673) 7,021,697
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES ($):
Purchases of portfolio securities (560,231,879)
Proceeds from sales of portfolio securities 555,818,861
Purchases of short term investments-net (477,569)
Net cash flows from futures transactions 2,410,269 (2,480,318)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES ($):
Proceeds from fund shares sold 47,964,551
Payments for fund shares redeemed (33,735,435)
Cash dividends paid (1,983,784)
Net repayments of reverse repurchase agreements (16,958,000) (4,712,668)
Decrease in cash (171,289)
Cash at beginning of period 246,140
Cash at end of period 74,851
- --------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES ($):
Net Increase in Net Assets Resulting from Operations 3,192,253
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Increase in dividends and interest receivable (15,753)
Decrease in paydowns receivable 35,808
Decrease in interest payable (17,163)
Increase in accrued expenses 6,710
Decrease in prepaid expenses 6,146
Increase in due from The Dreyfus Corporation and affiliates 17,238
Net amortization of discount on investments (41,111)
Net realized gain on investments (517,315)
Net unrealized depreciation on investments 4,354,884
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 7,021,697
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
-----------------------------
1999 1998
- --------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 7,029,822 5,555,447
Net realized gain (loss) on investments 517,315 (507,112)
Net unrealized appreciation (depreciation)
on investments (4,354,884) (1,328,489)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 3,192,253 3,719,846
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS ($):
From investment income--net (7,019,327) (5,545,920)
From net realized gain on investments (469,048) (291,592)
In excess of net realized gain on investments (170,796) --
TOTAL DIVIDENDS (7,659,171) (5,837,512)
- --------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS ($):
Net proceeds from shares sold 47,925,201 43,371,763
Dividends reinvested 5,675,387 4,345,234
Cost of shares redeemed (33,728,168) (24,682,862)
INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS 19,872,420 23,034,135
TOTAL INCREASE (DECREASE) IN NET ASSETS 15,405,502 20,916,469
- --------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 96,846,284 75,929,815
END OF PERIOD 112,251,786 96,846,284
Undistributed investment income-net 21,922 11,427
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 3,250,861 2,827,468
Shares issued for dividends reinvested 387,227 283,676
Shares redeemed (2,292,435) (1,611,860)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 1,345,653 1,499,284
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
<TABLE>
Year Ended December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($):
Net asset value, beginning of period 15.01 15.32 15.14 15.42 14.16
Investment Operations:
Investment income--net .96 .97 .99 .98 1.03
Net realized and unrealized
gain (loss) on investments (.54) (.26) .41 (.27) 1.25
Total from Investment Operations .42 .71 1.40 .71 2.28
Distributions:
Dividends from investment income--net (.96) (.97) (.99) (.99) (1.02)
Dividends from net realized gain
on investments (.06) (.05) (.23) -- --
Dividends in excess of net realized
gain on investments (.02) -- -- -- --
Total Distributions (1.04) (1.02) (1.22) (.99) (1.02)
Net asset value, end of period 14.39 15.01 15.32 15.14 15.42
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 2.82 4.71 9.55 4.81 16.62
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses to
average net assets .65 .65 .65 .65 .50
Ratio of interest expense and loan
commitment fees to average net assets .90 .17 -- -- --
Ratio of net investment income
to average net assets 6.54 6.34 6.46 6.50 6.86
Decrease reflected in above expense ratios
due to undertakings by
The Dreyfus Corporation .34 .39 .42 .52 .78
Portfolio Turnover Rate 366.43 388.97 534.25 332.96 254.36
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 112,252 96,846 75,930 57,665 55,615
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus BASIC GNMA Fund (the "fund") is registered under the Investment Company
Act of 1940, as amended ( the "Act"), as a diversified open-end management
investment company. The fund's investment objective is to provide investors with
as high a level of current income as is consistent with the preservation of
capital by investing principally in instruments issued by the Government
National Mortgage Association. The Dreyfus Corporation (the "Manager") serves as
the fund' s investment adviser. The Manager is a direct subsidiary of Mellon
Bank, N.A. (" Mellon"), which is a wholly-owned subsidiary of Mellon Financial
Corporation. Premier Mutual Fund Services, Inc. is the distributor of the fund's
shares, which are sold to the public without a sales charge.
The fund' s financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities (excluding short-term
investments other than U.S. Treasury Bills and financial futures) are valued
each business day by an independent pricing service ("Service") approved by the
Board of Trustees. Investments for which quoted bid prices are readily available
and are representative of the bid side of the market in the judgment of the
Service are valued at the mean between the quoted bid prices (as obtained by the
Service from dealers in such securities) and asked prices (as calculated by the
Service based upon its evaluation of the market for such securities). Other
investments (which constitute a majority of the portfolio securities) are
carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. Short-term investments, excluding U.S. Treasury Bills, are
carried at amortized cost, which approximates value. Financial futures are
valued at the last sales
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
price on the securities exchange on which such securities are primarily traded
or at the last sales price on the national securities market on each business
day.
(b) Securities transactions and investment income: Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the identified cost basis. Interest income
(including, where applicable, amortization of discount on short-term
investments) is recognized on the accrual basis. Under the terms of the custody
agreement, the fund received net earnings credits of $72 during the period ended
December 31, 1999 based on available cash balances left on deposit. Income
earned under this arrangement is included in interest income.
The fund may enter into repurchase agreements with financial institutions,
deemed to be creditworthy by the fund' s Manager, subject to the seller's
agreement to repurchase and the fund's agreement to resell such securities at a
mutually agreed upon price. Securities purchased subject to repurchase
agreements are deposited with the fund's custodian and, pursuant to the terms of
the repurchase agreement, must have an aggregate market value greater than or
equal to the repurchase price plus accrued interest at all times. If the value
of the underlying securities falls below the value of the repurchase price plus
accrued interest, the fund will require the seller to deposit additional
collateral by the next business day. If the request for additional collateral is
not met, or the seller defaults on its repurchase obligation, the fund maintains
the right to sell the underlying securities at market value and may claim any
resulting loss against the seller.
(c) Dividends to shareholders: It is the policy of the fund to declare dividends
daily from investment income-net. Such dividends are paid monthly. Dividends
from net realized capital gain are normally declared and paid annually, but the
fund may make distributions on a more frequent basis to comply with the
distribution requirements of the Internal Revenue Code of 1986, as amended (the
" Code" ). To the extent that net realized capital gain can be offset by capital
loss carryovers, if any, it is the policy of the fund not to distribute such
gain.
(d) Federal income taxes: It is the policy of the fund to continue to qualify as
a regulated investment company, if such qualification is in the best interests
of its shareholders, by complying with the applicable provisions of the Code,
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes.
NOTE 2--Bank Line of Credit:
The fund participates with other Dreyfus-managed funds in a $500 million
redemption credit facility (" the Facility") to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the fund has agreed to pay commitment fees on its pro rata portion of
the Facility. Interest is charged to the fund at rates based on prevailing
market rates in effect at the time of borrowings. During the period ended
December 31, 1999, the fund did not borrow under the Facility.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(a) Pursuant to a management agreement ("Agreement") with the Manager, the
management fee is computed at the annual rate of .60 of 1% of the value of the
fund' s average daily net assets and is payable monthly. The Manager had
undertaken until such time as they give shareholders at least 90 days' notice to
the contrary, if the aggregate expenses of the fund, exclusive of taxes,
brokerage, interest on borrowings, commitment fees and extraordinary expenses,
but including the management fee, exceed an annual rate of .65 of 1% of the
value of the fund' s average daily net assets, the fund may deduct from the
payments to be made to the Manager under the Management Agreement, or the
Manager will bear, such excess expense. The expense reduction in management fee,
pursuant to the undertaking, amounted to $364,195 during the period ended
December 31, 1999.
The undertaking may be extended, modified or terminated by the Manager, provided
that the resulting expense reimbursement would not be less than the amount
required pursuant to the Agreement.
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(b) Under the Shareholder Services Plan, the fund reimburses Dreyfus Service
Corporation, a wholly-owned subsidiary of the Manager, an amount not to exceed
an annual rate of .25 of 1% of the value of the fund's average daily net assets
for certain allocated expenses of providing personal services and/or maintaining
shareholder accounts. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the fund and providing reports and other information, and services
related to the maintenance of shareholder accounts. During the period ended
December 31, 1999, the fund was charged $142,532 pursuant to the Shareholder
Services Plan.
The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the
Manager, under a transfer agency agreement for providing personnel and
facilities to perform transfer agency services for the fund. During the period
ended December 31, 1999, the fund was charged $71,659 pursuant to the transfer
agency agreement.
The fund compensates Mellon under a custody agreement for providing custodial
services for the fund. During the period ended December 31, 1999, the fund was
charged $27,454 pursuant to the custody agreement.
(c) Each trustee who is not an "affiliated person" as defined in the Act
receives from the fund an annual fee of $2,500 and an attendance fee of $250 per
meeting. The Chairman of the Board receives an additional 25% of such
compensation.
NOTE 4--Securities Transactions:
(a) The aggregate amount of purchases and sales (including paydowns) of
investment securities, excluding short-term securities and financial futures,
during the period ended December 31, 1999, amounted to $565,070,728 and
$555,729,553, respectively.
The fund may invest in financial futures contracts in order to gain exposure to
or protect against changes in the market. The fund is exposed to market risk as
a result of changes in the value of the under lying instruments. Investments in
financial futures require the fund to "mark to market" on a daily basis; this
represents the change in the market value of the contract at the close of each
day's trading. Accordingly, variation margin payments are received or made to
reflect daily unrealized gains or losses. When the contracts are closed, the
fund recognizes a realized gain or loss. These investments require initial
margin deposits with a custodian, which consist of cash or cash equivalents, up
to approximately 10% of the contract amount. The amount of these deposits is
determined by the exchange or Board of Trade on which the contract is traded and
is subject to change. Contracts open at December 31, 1999, are set forth in the
Statement of Financial Futures.
The fund may purchase or sell securities on a when-issued basis. The price of
the underlying securities is fixed at the time the transaction is negotiated and
settlement may take place a month or more after that date. With respect to
purchase commitments, the fund will identify securities as segregated in its
records with a value at least equal to the amount of its commitments. Losses may
arise due to changes in the market value of the underlying securities, if the
counter-party does not meet the terms of the settlement agreement, or if the
issuer does not issue the securities due to political, economic, or other
factors.
(b) At December 31, 1999, accumulated net unrealized depreciation on investments
and financial futures was $4,829,396, consisting of $667,604 gross unrealized
appreciation and $5,497,000 gross unrealized depreciation.
At December 31, 1999, the cost of investments for Federal income tax purposes
was substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
NOTE 5-Reverse Repurchase Agreements:
The fund may enter into reverse repurchase agreements with banks, brokers or
dealers. This form of borrowing involves the transfer by the fund of an
underlying debt instrument in return for cash proceeds
The Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
based on a percentage of value of the security. The fund retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the fund repurchases the security at principal plus accrued
interest. Reverse repurchase agreements may subject the fund to interest rate
risk and counter party credit risk.
The average daily amount outstanding during the period ended December 31, 1999
was approximately $18,675,351, with a related weighted average annualized
interest rate of 5.19%.
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Dreyfus BASIC GNMA Fund
We have audited the accompanying statement of assets and liabilities of Dreyfus
BASIC GNMA Fund, including the statements of investments and financial futures,
as of December 31, 1999, and the related statements of operations and cash flows
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and financial highlights for each of the
years indicated therein. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
verification by examination of securities held by the custodian as of December
31, 1999 and confirmation of securities not held by the custodian by
correspondence with others. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Dreyfus BASIC GNMA Fund at December 31, 1999, the results of its operations and
its cash flows for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the indicated years, in conformity with accounting principles generally
accepted in the United States.
[Ernst and Young LLP Signature logo]
New York, New York
February 14, 2000
The Fund
IMPORTANT TAX INFORMATION (Unaudited)
For Federal tax purposes, the fund hereby designates $.0810 per share as a
long-term capital gain distribution paid on November 30, 1999.
For More Information
Dreyfus BASIC GNMA Fund
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
P.O. Box 9671
Providence, RI 02940
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
BY TELEPHONE
Call 1-800-645-6561
BY MAIL Write to:
The Dreyfus Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
BY E-MAIL Send your request
to [email protected]
ON THE INTERNET Information can be viewed online or downloaded from:
http://www.dreyfus.com
(c) 2000 Dreyfus Service Corporation 080AR9912
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN DREYFUS BASIC GNMA FUND AND
THE LEHMAN BROTHERS GNMA INDEX
EXHIBIT A:
LEHMAN BROTHERS
PERIOD GNMA DREYFUS BASIC
INDEX * GNMA FUND
12/31/89 10,000 10,000
12/31/90 11,058 10,858
12/31/91 12,832 12,300
12/31/92 13,782 13,163
12/31/93 14,689 14,315
12/31/94 14,468 14,174
12/31/95 16,935 16,529
12/31/96 17,872 17,325
12/31/97 19,576 18,978
12/31/98 20,932 19,871
12/31/99 21,335 20,432
*Source: Lehman Brothers Inc.
